Kodak reports 1st Quarter 2011 results; Key growth businesses gaining momentum
Friday, April 29, 2011
Press release from the issuing company
Rochester, N.Y. - Eastman Kodak Company today reported first-quarter results that reflect continued momentum of the company's core digital growth businesses and improved cash performance.
First-quarter sales were $1.322 billion, a 31% decrease from the year-ago quarter, primarily due to a $550 million non-recurring intellectual property licensing transaction in the year-ago period. Excluding the impact of the prior-year intellectual property transaction, first-quarter sales decreased by 3% and digital revenue increased by 2%. Revenue in several of the company's well established digital businesses increased, while revenue in Digital Capture & Devices decreased, reflecting the company's previously announced strategy for this business to trade top-line growth for improved full-year earnings.
Revenue from the company's core digital growth businesses - Consumer and Commercial Inkjet, Packaging Solutions, and Workflow Software & Services - increased by 23%, fueled by agreater than 50% increase in Consumer Inkjet. First-quarter revenue from the company's Film, Photofinishing and Entertainment Group declined by 14%.
On the basis of U.S. generally accepted accounting principles (GAAP), the company reported a first-quarter loss from continuing operations of $249 million, or $0.92 per share, compared with earnings from continuing operations on the same basis of $119 million, or $0.40 per share, in the year-ago period. Non-operational items of net benefit in the first quarter of 2011 totaled $55 million after tax, or $0.21 per share, primarily due to asset sales, restructuring charges, corporate components of pension and other post-employment benefit costs, and tax-related items. Non-operational items of net expense in the first quarter of 2010 totaled $111 million after tax, or $0.34 per share, primarily related to a loss on early extinguishment of debt, restructuring charges, corporate components of pension and other post-employment benefit costs, and tax-related items. (Please refer to the attached Non-Operational Items table for more information.)
"Our strategy is working," said Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak Company. "We saw continued momentum in our strategic digital growth businesses, revenue growth in several of our established digital businesses, and improved cash performance, all of which position us well to achieve our two key financial metrics for the year related to growth and cash.
"I am particularly pleased with the performance of our core digital growth businesses -- Consumer and Commercial Inkjet, Packaging Solutions, and Workflow Software & Services. Revenue growth in these businesses continues to accelerate and in the first quarter grew by a combined 23%, in line with our plan to grow these businesses in aggregate by 40% for the full year," Perez said. "We also saw revenue growth in Prepress Solutions, Electrophotographic Printing, and Document Imaging. We are off to a good start for 2011, and we remain confident that we will complete our transformation into a sustainable, profitable company in 2012."
Other first-quarter 2011 details:
- The company's first-quarter loss from continuing operations, before interest expense, other income (charges), net, and income taxes was $227 million, compared with $389 million in earnings in the year-ago quarter. This earnings decline primarily reflects the impact of a non-recurring intellectual property transaction in the first quarter of 2010 that was not repeated in the first quarter of 2011.
- Segment Gross Profit was 10.5% of sales, as compared to 41.2% of sales in the year-ago period. On a GAAP basis, gross profit was 9.5% of sales, as compared to 41.4% of sales in the year-ago period. This decrease in margin was primarily driven by the non-recurring intellectual property licensing agreement in the prior-year quarter.
- Segment Selling, General and Administrative (SG&A) expenses were $311 million, an $8 million decline from the prior-year quarter, as a result of company-wide cost reduction actions. On a GAAP basis, SG&A expenses were $311 million, essentially flat with the year-ago quarter.
- Segment Research and Development (R&D) expenses were $82 million, a $6 million decline from the prior-year quarter. On a GAAP basis, R&D expenses were $78 million in the first quarter, in line with the year-ago quarter.
- First-quarter 2011 cash usage, before restructuring payments, was $449 million, a $7 million improvement from the year-ago quarter. This corresponds to net cash used in continuing operations from operating activities on a GAAP basis of $515 million in the first quarter, compared with net cash used in continuing operations from operating activities on a GAAP basis of $471 million in the first quarter of 2010.
- Kodak held $1.3 billion in cash and cash equivalents as of March 31, 2011, compared with $1.5 billion on the same date a year ago.
Segment sales and earnings from continuing operations before interest, taxes, and other income and charges (segment earnings from operations), are as follows:
- Graphic Communications Group first-quarter 2011 sales were $625 million, a 4% increase over the prior-year period. This increase is largely due to stronger demand for digital plates in Prepress Solutions, increased scanner sales in the company's document imaging business, an increase in business process services within Business Services and Solutions, and favorable foreign exchange. First-quarter loss from operations for the segment was $71 million, compared with a loss of $40 million in the year-ago quarter. This earnings decline is primarily driven by start-up costs to support growth opportunities in commercial inkjet.
- Consumer Digital Imaging Group first-quarter sales were $330 million, compared with $884 million in the prior-year quarter. First-quarter loss from operations for the segment was $168 million, compared to earnings of $401 million in the prior-year quarter. This decline in revenue and earnings is primarily due to the $550 million non-recurring intellectual property transaction in the first quarter of 2010.
- Film, Photofinishing and Entertainment Group first-quarter sales were $367 million, a 14% decline from the year-ago quarter, driven by continuing industry-related declines. First-quarter loss from operations for the segment was $15 million, compared with earnings of $22 million in the year-ago period. This decrease in earnings was primarily driven by significantly increased raw material costs, particularly silver, and industry-related declines in volumes, partially offset by cost reductions across the segment.
For 2011, Kodak remains on track to achieve its two key financial metrics, which the company first announced at its February investor meeting:
- Continue to build the scale of its four digital growth businesses - Consumer and Commercial Inkjet, Workflow Software & Services, and Packaging Solutions - and achieve greater than 40% aggregate revenue growth from these businesses.
- Achieve positive cash generation before restructuring payments.
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